Libya's eastern central bank may order more cash from Russia - governor

TUNIS (Reuters) - The head of an eastern, parallel branch of Libya’s central bank said he may order more banknotes from Russia, in an effort to ease liquidity problems before a currency devaluation he hopes to work out with the country’s internationally recognised government.

The governor of the eastern bank, Ali al-Hibri is aligned with a rival government based in eastern Libya. He has little leverage, since the recognised central bank in Tripoli has continued to control oil revenues and disburse funds across the country, with international backing.

But four of six board members of the Tripoli-based Central Bank of Libya are aligned with the eastern-based factions that tried to set up parallel financial institutions as conflict in Libya escalated in 2014. Hibri’s central bank is one of those institutions.

The split between the eastern and the Tripoli governments is one consequence of the uprising that overthrew strongman Muammar Gaddafi in 2011. Libya was left with two governments and an assortment of armed factions vying for power.

The political split has contributed to an economic crisis that has left many Libyans struggling. Inflation is running at more than 30 percent and people queue for days to withdraw cash from banks. On the black market, the value of the dinar has slid more than 600 percent since 2014.

Western diplomats say unifying the exchange rates of the two governments could help curb corruption. Some well-connected Libyans get dollars at the official rate on the pretext of importing goods, then sell them at the black market rate.

Hibri said in a rare interview he would not meet the governor of Tripoli’s central bank, Sadiq al-Kabir, but he expected a devaluation and economic reform plan to be pushed through by the recognised Government of National Accord (GNA), headed by Prime Minister Fayez Seraj, and its central bank.

“I am cooperating with (Seraj),” Hibri said. “We are going to reform the exchange rate. We are going to find out how we are going to reform the liquidity problem. We are going to find how to control inflation.”

Under the evolving plans, bloated subsidy spending would be replaced by cash payments, he said.

The Tripoli central bank said earlier this month that an economic and financial reform plan had been agreed at a meeting in Tunis of the two governments and Libya’s Audit Bureau. It gave no details.

Kabir’s relations with the GNA have been tense, and it remains unclear when or how such plans might be implemented. There was no mention of changing the official exchange rate, which remains fixed at 1.36 dinars to the dollar, while the parallel rate has fallen to about 9.5 dinars.

The U.N. and Western powers have been pushing both central banks to work together as they seek to create a unified government to stabilise the oil-rich nation.

RUSSIA

Hibri said devaluation would “probably” ease the liquidity shortage, but that “you need some cover for the period until the exchange rate reform takes place”.

The bank would therefore likely discuss a fresh order for bank notes from Russia at a board meeting next month.

“When we meet in the next board we shall decide – we need to study how much the market needs. We shall have to solve the problem of liquidity,” Hibri said.

The eastern central bank took its first delivery of banknotes from Russia last year, after failing to obtain supplies from British and German companies. The move came as eastern-based factions backing military commander Khalifa Haftar forged closer ties with Russia.

The final batch of the 4 billion dinars was delivered about three months ago, Hibri said.

Last month, the east took a first delivery of coins made in Russia, which Hibri said amounted to 15 million dinars. A further 85 million dinars in coins is due to be shipped by mid-2018.

Hibri restated claims that the east was receiving less than its fair share of funding for salaries and other costs from the Tripoli central bank, saying he had raised 15 billion dinars through treasury bonds since 2015 to support public spending in the east.